The Hong Kong government has shifted its focus to decentralized finance (DeFi) and metaverse technologies to strengthen its global fintech standing.
Recent reports from the Hong Kong Institute for Monetary and Financial Research (HKIMR), the research division of the Hong Kong Academy of Finance (AoF), support this move.
The HKIMR report on DeFi notes its substantial growth, with market capitalization soaring from $6 billion in 2021 to over $80 billion in 2023. Despite this rapid expansion, DeFi currently represents only 4% of the overall crypto-asset market. The report suggests that over 70% of crypto businesses must fully explore DeFi’s possibilities.
The report acknowledges DeFi’s challenges, including governance, compliance, and vulnerabilities. Nonetheless, it remains optimistic about DeFi’s potential to introduce innovative financial services. These services can enhance automation and financial inclusion, making them a noteworthy aspect of future financial systems.
Metaverse Engagement Among Financial Institutions
The second HKIMR report focuses on the metaverse, revealing a moderate level of engagement among Hong Kong’s financial institutions. Despite interest, more than half of the respondents (51%) expressed skepticism regarding the metaverse’s future potential. However, some segments of Hong Kong’s fintech industry actively pursue developments related to the metaverse, indicating a growing recognition of its possibilities.
Enoch Fung, CEO of the AoF and executive director of the HKIMR, commented on the synergy between emerging technologies and financial services.
“The emerging technologies of DeFi and the metaverse, which are closely connected to the broader virtual asset and Web3 developments, will likely present various opportunities for the financial services industry in Hong Kong.”
Promoting Hong Kong in the International Tech Scene
Hong Kong’s government officials have taken steps to promote the city as a prime location for fintech and Web3 startups. Representatives attended the Collision 2024 tech conference in Toronto, showcasing Hong Kong’s readiness to serve as an offshore technology hub for Canadian crypto and Web3 businesses. The event was co-hosted by the Hong Kong Economic and Trade Office in Toronto (Toronto ETO), Invest Hong Kong (InvestHK), and StartmeupHK (SMUHK).
Despite positioning itself as a crypto-friendly hub, Hong Kong has experienced a series of crypto exchange closures. In March 2024, HKVAEX, allegedly affiliated with Binance, withdrew its license application. This was followed by the exit of IBTCEX, QuanXLab, Huobi HK, Gate.HK, OKX HK, and Bybit (Spark Fintech Limited) in May. These departures leave 17 virtual asset trading platforms on the application list, with 11 companies withdrawing or returning their license applications.
The withdrawal of license applications has raised concerns about Hong Kong’s cryptocurrency licensing system. Hong Kong Legislative Council member Wu Shuo has publicly criticized the system, arguing that it undermines market confidence. The recent closures and withdrawals have highlighted crypto businesses’ challenges in navigating Hong Kong’s regulatory landscape.
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